CFA could be assigned after firm went bust, circuit judge rules

An insolvent firm of solicitors could validly assign conditional fee agreements (CFAs) to another law firm, a circuit judge has ruled in a much-anticipated case that is expected to end up in the Court of Appeal.

Jones v Spire Healthcare deals with the fallout from the collapse of Southport firm Barnetts in January 2014, after which its personal injury book was bought by SGI Legal in Liverpool.

Though SGI has concluded many of the cases without challenge, the defendant here disputed the validity of the assignment, even though the claimant had entered into a specific deed of assignment alongside the general one SGI had with Barnetts’ administrators.

At first instance, District Judge Jenkinson ruled that while the benefit of the retainer inherent in the CFA was validly assigned, the burden was not, which meant SGI could recover the costs incurred by Barnetts, but no subsequent costs it incurred because there was no valid retainer.

Further, whilst the assignment was a novation based upon the original, pre-LASPO terms of the CFA, it was not enforceable because it did not comply with the post-LASPO CFA regulations.

The claimant appealed against the disallowance of the post-assignment costs, and the defendant against the allowance of the pre-assignment costs.

HHJ Graham Wood QC noted: “The court has been made aware that this is an appeal of some significance, because the claim involved is one of several hundred which were pursued under CFAs with the now defunct firm, and in respect of which the point has not previously been taken for those bills already assessed, but which might be taken in respect of future assessments.

“Insofar as SGI Legal LLP paid a significant consideration to acquire the work in progress, referred to under a generic deed of assignment, it stands to lose out substantially if costs cannot be recovered for that work both pre-and post-assignment. There are also other cases awaiting my decision, and it appears that a higher appellate court may become engaged on the grounds that this is a matter of public importance and wider ramification.”

The claimant’s appeal turned on the decision of Mrs Justice Rafferty (as she then was) in Jenkins v Young Brothers Transport Ltd [2006] EWHC 151, which established a narrow exception to the rule that a personal contract could not be assigned, saying it could be where a client was following his solicitor to another firm.

Allowing the appeal, HHJ Wood ruled: “Rafferty J was not seeking to qualify the exception to the general rule against the assignment of the burden of a contract to specific situations where personal trust and confidence could be established, so much as to set a context in which it applied to the facts of the case…

“It was open to the judge to conclude that the personal trust and confidence was a necessary element where the contract was a personal one, as opposed to a compelling context, and without it the assignment would not be valid. She did not go so far as to say that, and in my judgment the ratio of her decision was not so qualified.”

This meant DJ Jenkinson was wrong to proceed on the basis that the court had to establish the same context of trust and confidence, HHJ Wood said.

The court, he continued, could not ignore what was intended here. Rules restricting burden assignment were “clearly devised to protect the non-participating counterparty”, but here the claimant had entered into a separate deed of assignment. “It would be an unduly restrictive and overly legalistic approach to deny the parties the effect of what they intended.”

Further, “if the efficacy of an assignment depended upon a qualitative assessment of the degree of trust and confidence, this would generate considerable uncertainty, leading to potential satellite costs litigation whenever a retainer is challenged on the basis of purported CFA assignment, with the court being required to investigate in every case the nature of the relationship between the client and the solicitor.

“It is axiomatic that case handling these days is conducted at a distance, and it would be very difficult to identify those cases where a particular client had been insistent on the continuity of a specific fee earner. Of course every case depends upon its own particular facts, but in my judgment it would be wrong to qualify this particular exception to the general rule based upon an inextricable link between burden and benefit, by making a finding of trust and confidence a pre-requisite.”

However, HHJ Wood did not allow the defendant’s appeal, ruling that the CFA “allowed the contingent debt, referable to an ascertained amount and an ascertained point at which it would be paid in the future, assuming success, to be classified as a present chose in action capable of assignment”.

Simon Gibson, managing partner of SGI Legal, told Litigation Futures that he was “content with the judge’s interpretation”. Acknowledging that it raised “interesting points of law”, he said the firm would be keeping a “watching brief” for any appeal.

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